On the evening of February 23, Warren Buffett's Berkshire Hathaway released its annual open letter to shareholders. In the letter, Warren Buffett announced its 2024 results, and Berkshire performed better than expected, with an operating profit of $47.4 billion and a stock market return of 25.5%, outperforming the S&P 500 index25% increase.
In the long run, Berkshire's market capitalization per share will grow at a CAGR of 19.9% from 1965 to 2024, significantly outpacing the S&P 500's 10.4%, while Berkshire's overall earnings growth from 1964 to 2024 is 5502284%, or more than 55,022 times, compared to 39,054 percent, or more than 390 times, for the S&P 500.
What are the highlights of the shareholder letter? Jingtai will help you decipher.
|Performance that exceeds expectations
On the evening of the 2nd, Berkshire Hathaway announced its financial results for the fourth quarter and full year of 2024. According to the data, the net profit attributable to Berkshire Hathaway in the fourth quarter of 2024 was $19.694 billion, down from $37.574 billion in the same period in 2023. However, the net profit for the full year of 2024 still reached $88.995 billion, although this figure was slightly lower than the $96.223 billion in the same period last year.
In a letter to shareholders, Warren Buffett said: "In 2024, Berkshire has exceeded my expectations. While 53% of our 189 operating businesses reported lower profits, we benefited from a significant increase in investment income, largely due to higher yields on Treasury bills. We have significantly increased our holdings of highly liquid short-term securities. He also highlighted the significant growth in the insurance business, especially the performance of GEICO: "Our insurance business has achieved significant profit growth, and GEICO is particularly prominent. For five years, Todd Combs undertook a major overhaul of GEICO, improving efficiency and updating underwriting practices. Although the work is not yet complete, the improvements in 2024 are remarkable. ”
Compared to net profit, operating profit (operating earnings) is the metric that Warren Buffett and his team value the most. In the fourth quarter of 2024, Berkshire Hathaway's operating profit was $14.53 billion, far exceeding market expectations of $9.87 billion, a year-on-year increase of 71%. This significant increase was mainly due to a significant increase in insurance investment profits, which increased by 48% to $4.1 billion against the backdrop of rising interest rates.
As a result, Berkshire Hathaway's full-year operating profit for 2024 reached $47.437 billion, up 27% year-on-year from $37.35 billion at the end of 2023. This data is yet another testament to the company's solid performance and strength in a complex economic environment.
Cash position hits a new high, but we are firmly bullish on equity investment
At the end of last year, Berkshire Hathaway held $334.2 billion in cash and cash equivalents, another record high. While some commentators believe Berkshire's cash holdings are too high, Buffett stressed that the vast majority of the money is still in equities and that preference will not change.
"While Berkshire's ownership in tradable stocks has declined from $354 billion in 2023 to $272 billion in 2024, the value of our unlisted holding companies has increased and remains well above the value of our tradable portfolio." Warren Buffett wrote in a letter to shareholders. He further noted, "Berkshire shareholders can rest assured that we will always put the majority of our money into equities – primarily U.S. companies, but many of them also have significant operations in global markets." ”
Two major parts of the portfolio
Berkshire's portfolio is divided into two main segments: holding companies and tradable stocks. Valued at hundreds of billions of dollars, these holdings cover a number of "rare pearls", but also some underperforming "laggards". Warren Buffett explained, "Some of our holdings are very good companies that bring tremendous value to Berkshire, even though not all of them can perform equally well. ”
For the tradable stock segment, Berkshire holds minority stakes in about a dozen large, profitable companies, such as Apple, American Express, Coca-Cola and Moody's. These companies have achieved very high returns on the net tangible equity required to operate and are the highlight of Berkshire's portfolio.
Ongoing investment strategy
Warren Buffett stressed: "Berkshire will never prefer to hold cash equivalents and ignore equity in quality businesses, whether controlled or partial. He believes that the equity of high-quality companies is the key to long-term value-added. Despite the current challenging global economic environment, Berkshire will continue to adhere to its philosophy of long-term value investing, focusing on finding companies that can provide sustainable growth potential to invest in.
Investments in Japan will be increased
Although Berkshire Hathaway is primarily focused on the U.S. market, Buffett specifically mentions a "small but important exception" in his shareholder letter – the company's growing investment in Japan. This not only demonstrates Berkshire's focus on the global market, but also demonstrates its deep understanding of the value of Japanese companies.
Buffett recalls that Berkshire bought shares of Japan's five largest trading companies for the first time in July 2019. "Just looking through their financial statements at the time, I was shocked by their extremely low share price." Over time, Berkshire's appreciation for these companies grew. The five companies are ITOCHU Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co. and Sumitomo Corporation.
Investment logic and similarities
Buffett noted that these five companies have run very successfully and, in a way, have a similar operating model to Berkshire. These companies increase dividends at the right time, buy back shares when they do, and their top management compensation packages are far less aggressive than their U.S. counterparts. This robust management style and financial strategy caught Berkshire's attention.
Buffett emphasized that the holdings in these five companies are long-term, and Berkshire has pledged to support the boards of directors of these companies. At the beginning, he had agreed to keep Berkshire's stake below 10% of each company's shares. But when approaching that cap, the five companies agreed to a modest relaxation of the cap. This means that over time, the future may see an increase in Berkshire's stake in all five companies.
As of the end of last year, Berkshire's total investment cost to Japan's five largest trading companies was $13.8 billion, with a market value of $23.5 billion. It is worth mentioning that Berkshire buys these Japanese stocks by issuing yen bonds, so it is not affected by exchange rate fluctuations. Buffett expects Greg and his successors to hold these Japanese assets for the long term, and that Berkshire may work more with the five companies in the future.
There are some changes to the Annual General Meeting of Shareholders
This year, Berkshire Hathaway's shareholder meeting will be held on May 3 local time in Omaha. In the shareholder letter, Warren Buffett detailed some of the new arrangements and highlights of the meeting.
Unlike in the past, this year's general meeting will not show the traditional opening video, but will choose to start early, scheduled to officially open at 8 a.m. Warren Buffett will start the session with a brief opening remarks, followed immediately by a highly anticipated Q&A session. The change is designed to allow investors to participate more directly in the conversation, making it more interactive and immediate.
During the Q&A session, there will be three key figures on stage: Warren Buffett himself, Greg, who is in charge of non-insurance business Abel), and Ajit Jain, who is in charge of insurance Jain）。 It is worth noting that Ajit Jain will only be present for the morning Q&A session.
This year's Q&A schedule has been shortened, but the content is still rich. Q&A starts at 8 a.m. and lasts until 10:30 a.m.; This is followed by a half-hour break. After the break, Buffett and Abel will continue the second Q&A until 1 p.m. This arrangement guarantees both the amount of information and the experience of the guests.
It is worth mentioning that this year marks the 60th anniversary of Warren Buffett's takeover of Berkshire Hathaway. To this end, the official merchandise book "60 Years of Berkshire Hathaway" (60 Years of Berkshire Hathaway), a book containing Charlie Munger's photographs, quotes, and lesser-known stories. Limited to 5,000 copies, the book is available for sale Friday afternoon and Saturday from 7 a.m. to 4 p.m., providing attendees with a valuable collection opportunity.
For investors, this is a great opportunity to get up close and personal with the investment gurus and gain insight into the future direction of Berkshire Hathaway.
